Regional Update (October-December 1996)

Index Southeastern economic indicators

Cover Story - Southeast to Keep Pace with the Nation in 1997

Alabama is Poised for Improvement

Florida's Pace to Slow but Remain Strong

A Slower but Positive Pace in Store for Georiga

Resource Base Likely to Work in Louisiana's Favor

Mississippi Set to Emerge from Its Post-Boom Hangover

A Good but Unspectacular Year Ahead for Tennessee

Resource Base Likely to Work
In Louisiana's Favor

Despite some weakness in New Orleans, overall the state managed to increase employment at about the national average in 1996. Much of this payroll strength came via recovery in the energy and petrochemical industries, where new extraction technologies and strong product demand both domestically and internationally fueled considerable gains. In turn, these industries helped offset a slowdown in services and construction.

Next year should see more of the same. The energy and petrochemical industries will continue to supply significant strength to the state's economy (as large-scale investments in research and technology pay off). But, in the absence of a huge increase in oil prices, these industries should not precipitate a 1970s-style boom. In addition, many of the problems in New Orleans, as well as the problems associated with a post-gambling surge, will have been worked out. The service sector will continue to dominate the economy, but the state inevitably will be affected by its unusual natural resource base—which is currently to Louisiana's advantage.

Manufacturing outlook brighter

mployment in Louisiana's factories grew a marginal 0.2 percent from the third quarter of 1995 through the third quarter of 1996. And although the manufacturing sector is small, employing only approximately 10.5 percent of Louisiana's workers, the capital-intensive chemical and energy industries are important components of the state's economy. Indeed, this year chemical products were the state's leading export commodities, along with food, paper, petroleum, and primary metal products.

The chemical and petroleum products industry employs about 40 percent of the state's nondurable goods production workers. The oil and gas extraction industry alone employs about 46,000 workers, not including the thousands of workers in Louisiana companies that supply oil well and gas field equipment and supplies.

The outlook is bright for these industries, provided that energy prices stay relatively stable and that new technology to retrieve oil from older wells is more fully utilized. Production of agricultural chemicals, a main component of Louisiana's chemical industry, is likely to remain at relatively high levels.

The state's largest durable goods industry, transportation equipment, concentrated in aerospace, light truck, auto and shipping components, has been adversely affected by space program cutbacks, forcing layoffs by some suppliers. Other areas of the industry are prospering. In the Shreveport area, the continuing popularity of light trucks is likely to keep production and employment levels up in local auto component factories.

In addition, Avondale Shipyards (a large New Orleans shipbuilding concern) has one of the biggest backlogs in company history, and a $20 million modernization and equipment program should help secure future orders. About 400 highly compensated positions will be created in the coming year in the steel industry as three iron companies build plants (around $700 million in total investment) in Louisiana.

Louisiana and its ports should continue to benefit from competitive and diversified U.S. industries, as well as strong GDP growth in the ASEAN and Latin America countries—the state's fastest growing foreign markets.

Outlook mixed in services

Service industries in Louisiana experienced mixed results in 1996. Employment in the hotels and lodging industry increased moderately from the previous year and should continue to expand as new hotels and motels open for business. Employment in amusement and recreation, however, fell by more than 4 percent as a result of problems in the casino business. Consolidations in the health services industry resulted in employment shrinkage of slightly more than 1 percent.

As in other states in the region, business services continued to add to employment rolls over the period. The outlook in the coming year is for stabilization in recreation and health services and further growth in business services.

Concerns could emerge in tourism industry

New Orleans posted strong visitor numbers during 1996 but, as a result of recent expansions in the hotel industry, there is some concern about overbuilding (capacity has increased about 15 percent during the last two years). Also, delays in completion of the city's convention center have resulted in cancellations of several conventions. Nevertheless, hotel occupancy rates in New Orleans continue at high levels, and tourism officials hope that these levels will remain high in 1997.

The gaming industry in the city may also begin to expand in the new year, due largely to the profitability of riverboat casinos and the possible reopening of the previously bankrupt downtown casino.

Modest retail growth rates next year

Overall, retail growth rates decelerated during 1996, falling below year-ago levels in the third quarter. Both durable and nondurable segments of the market weakened through the year.

Much of the falloff in the second quarter of this year was attributable to year-on-year spike associated with the surge in sales that occurred in May 1995 as a result of flooding in the New Orleans area. Automobile sales were weak in 1996 as levels dropped below year-ago figures in both the second and third quarters. Retail sales growth during 1997 should be modest overall, about in line with overall state income.

Construction to slow

Single-family home construction and existing home sales were strong during the first half of the year but dropped significantly in the third quarter. Existing home sales fell below year-ago levels while building permit growth was a small 1.5 percent, well below the regional rate of 2.6 percent.

After a slight rebound during the first quarter, permit levels in the New Orleans market slowed both year-on-year and quarter-to-quarter. The Baton Rouge market also experienced significant declines in the growth of housing permits during 1996. In the coming year single-family construction should continue to slow statewide, achieving only moderate levels of growth.

In contrast, multifamily construction in Louisiana was healthy during 1996. Permits through the third quarter exceeded the same period a year ago. In New Orleans, Louisiana's largest market, the 1996 multifamily sector was extremely brisk, with rents rising moderately. Most of the new space in the New Orleans market consists of conversions of older warehouses or office buildings. Both the state and New Orleans should sustain robust multifamily markets.

The commercial market overall continued to perform well this year. However, New Orleans struggled. The industrial market was largely stagnant but is expected to improve in 1997. Build-to-suit projects should dominate. Renovation of older space for industrial uses is likely to help push the vacancy rate down.

The office market in New Orleans is expected to continue to suffer next year, as no plans exist for major corporate relocations into the city. And while the retail market boomed in 1995-96, concerns regarding overbuilding may occur in the next year. All in all, the commercial market remains a mixed bag, and construction will slow moderately in 1997.

Cotton is king in Louisiana

In terms of receipts, cotton is Louisiana's number one agricultural commodity. However, the state's cotton acreage is down from last year, to 940,000 acres. Yields, conversely, rose to 664 pounds per acre this year (607 pounds per acre in 1995). Despite this increase in yields per acre, total production fell from 1,335,000 bales to approximately 1,300,000 bales. Next year should see essentially more of the same, since the price of cotton is low relative to that of other crops.

The Louisiana rice industry paralleled cotton this year, with total acreage dropping to approximately 535,000 acres (570,000 acres in 1995). Rice yields rose to an estimated near record 5,000 pounds per acre in 1996 (4,822 pounds per acre in 1995) while total production fell slightly. Nationally, acreage is down 211,000 acres from last year. This reduction in supply is, not surprisingly, boosting the price of rice, and next year should be a good one for those in the rice business.